Union Pacific, film industry deals are very different

The State of New Mexico, and Southern New Mexico in particular, face a great opportunity. One of America’s great railroads, Union Pacific, is hoping to build a $400 million railroad hub in Santa Teresa. While there would be a few, relatively minor tax incentives given to the company, this deal, if it is approved by the Legislature, would be a huge economic boon for the state.

Why is that? First and foremost, no taxpayer funds would actually be spent on this project. The tax on locomotive fuel would be eliminated, but millions of tax dollars would flow into state and local coffers annually, with Santa Teresa becoming an important hub of economic activity.

Also, the Union Pacific facility represents a huge investment of private capital in the state. This rail yard would stay in the state for decades (or more) and could even lead to further increases in rail and intermodal transportation activity in Southern New Mexico. All of this is good news, not to mention that freight rail is a green industry.

Unfortunately, some of our elected officials, failing to understand the difference between spending and taxes left uncollected, have conflated the Union Pacific issue with that of the film industry’s generous 25 percent subsidy on all activities the industry undertakes in New Mexico. This is not taxes uncollected; rather it is spending to the tune of $70 million annually.

Paul J. Gessing

Sen. Michael Sanchez, one of the most powerful Democrats in New Mexico’s Senate, recently questioned Gov. Martinez’s pledge to cut New Mexico’s film subsidy from 25 percent of everything spent in the state to 15 percent while at the same time eliminating the locomotive fuel tax to help close the Union Pacific deal. Of the Union Pacific deal, Sanchez said, “Isn’t that a subsidy? Isn’t the railroad one of the most subsidized industries in the country?”

I don’t pretend to know all there is to know about the railroad industry and its finances, but this is about New Mexico and what it offers various industries. Viewed from that lens, New Mexico does very little for the freight railroad industry (the RailRunner is another matter entirely) but does a great deal for film.

In my view, no industry has a right to take my hard-earned money directly in the form of taxes. That makes the two issues very different, with the Union Pacific arrangement far superior both for taxpayers and New Mexico’s budget.

Phase out welfare for movies, give exemption to Union Pacific

Further differentiating the deals is the fact that once it is built, Union Pacific is not likely to move its rail hub, as it would be prohibitively expensive to do so. The film industry, on the other hand, is already threatening to pick up and move based on the mere threat of a reduced annual subsidy. They can easily do so because the industry can and has quickly moved to states that offer the sweetest deals. Simply put, it is not a sustainable industry in New Mexico.

While the Union Pacific deal will ultimately be a big winner for New Mexico, some purists will question why the state should offer special deductions and deals in the first place. This is indeed a valid point and, ideally, taxes would be low enough that New Mexico would not need to offer special deals to Union Pacific or anyone else. Until then, however, large businesses with the power to do so will continue to negotiate special deals.

Small businesspeople, on the other hand, must bear the burden of New Mexico’s unique gross receipts tax, which covers services and business inputs, while also paying income taxes at a top rate of 4.9 percent while Texans pay nothing. This is the reality of tax competition, and it is one reason why Texas has continued to create jobs and attract businesses despite tough economic times.

If New Mexico taxpayers are smart, they’ll phase out or abandon welfare payments for movies, provide the limited exemptions necessary to attract Union Pacific, and work to make the state’s tax and regulatory climates more attractive to generate more growth at home.

Gessing is the president of New Mexico’s Rio Grande Foundation, an independent, nonpartisan, tax-exempt research and educational organization dedicated to promoting prosperity for New Mexico based on principles of limited government, economic freedom and individual responsibility.

5 comments so far. Scroll down to submit your own comment.

First, thank you for agreeing that you are not a principled “free-market” advocate.

Second, my preferred method is twofold: one, develop research-industrial parks around local universities as happens elsewhere in the country, probably most notably in the research triangle in North Carolina; and, two, reform public education so that those whose business is as transportable as a laptop and whose spouses are concerned about their children’s education know that an educated work force can meet their entrepreneurial needs and satisfy their desire for their children’s education.

I don’t think that’s what Sanchez is saying. We have according to LFC over 320 carve outs and the only one we get to put an actual cost on is Film. What does the hold harmless on GRT cost us ? How about exemptions to new car dealers which is one that even Don Chalmers doesn’t fully support. Our subsidies to the Medical Industries that several other states have looked to reduce are obscene. Its completely beyond me why this state seems incapable of combined reporting. The DWI “Industry” costs us conservatively half a billion a year plus extra insurance for those that do insure correctly. We exempt Cage Fighting for petes sake !. Gov Mart opened this conversation by reducing the Film Tax Credit by 40% while favoring an already heavily subsidized industry that was the first to receive a tax break 99 years ago ! ( not to mention the Gadsden purchase.) She right, we should look at film. But why stop there/

So, Michael, eliminating a tax on locomotive fuel is now somehow anti-free market? Do you oppose doing this to attract Union Pacific to New Mexico? What is YOUR preferred method of developing New Mexico’s economy? You level these general criticisms, but offer few specifics.

Taxes on motor fuel for vehicles should be allocated to paying for the roads. The railroads build and maintain their own tracks. There is really no justification for taxing locomotive fuel at all aside from the fact that government wants more money.

I wish that Paul Gessing were a supporter of the “free market.” Regrettably, he prefers government meddling through its support of big businesses with powerful political influence by cutting their tax obligations. Worse, he pretends that reduced or eliminated taxes do not leave millions owed to the state in corporate coffers. This tactic discourages companies from being good citizens in the states; indeed, it encourages them to gouge states for special treatment. Gessing’s “free market” serves, not as a principle, but as a platform to denounce government regulations which enable citizen to have better health from clean air and clean water, or protect workers’s safety in mines and factories, or on farms.

We do not have any “empirical evidence of the industry’s effect” on jobs in New Mexico. The only information we get is the hyperbole of the film industry and of a few misguided state legislators, who are clueless about the program.

Also the details of how film production companies have been spending taxpayer dollars has been kept private (confidential) from the public ever since the state of New Mexico opened its arms to Hollywood. The public deserves to know about the reimbursement of expenses – all details. Plus we need an audit of the program ASAP before we give away more state money for a nebulous return. It appears to a bad investment for the state and a cash cow for the wealthy film producers. As they said in a TV commercial: “Where is the beef (real jobs)?”